Analysis: Next boss Wolfson’s Christmas trading takeaways

Next is typically the first big retailer out of the blocks to update on Christmas trading and today all eyes were on the fashion giant for an industry read-across and insights from chief executive Lord Wolfson.

The retailer beat expectations following a better than expected performance in-store and online. Although shop sales were still down 3.9% during the three months to December 28, Next nudged up its full-year profit guidance by £2m. But what conclusions can the wider sector draw from Next’s performance?

2020 will be a groundhog year

Despite Next outperforming expectations in its fourth quarter, Wolfson tells Retail Week he expects the new year to be little different from 2019.

That is reflected in a forecast 1% rise in profits in 2020 to £734m, on full-price sales up 3%.

While the December general election brought a majority Conservative government and a clearer sense of direction on Brexit, Wolfson does not expect that to make a big immediate difference to shoppers.

He says: “In terms of the year ahead, we expect it to be very similar to the year just gone. If there is a fillip, it is going to be very much a long-term one.”

He says “the headlines last year made very little difference to sales” and while certainty in the long term from political stability and any free-trade deal with Europe would be good for consumers as well as the country, “don’t expect some sudden change in consumer behaviour”.

Black Friday didn’t kill the Boxing Day Sales

Next reported that clearance rates in its post-Christmas Sale so far “have been slightly lower than our expectations”.

That followed the latest update from department store business John Lewis, which said on Tuesday that “despite a busy few days in the run-up to Christmas, a slower than usual start to clearance promotions” drove a 4.1% dip in sales during the week to December 28.

The disappointing start to the promotional period prompted some observers to question whether November’s Black Friday price-cutting extravaganza had cannibalised the traditional Sales starting on Boxing Day. Wolfson, however, suggests the weather had a bigger impact.

He says: “I’m sure it’s not a ‘Black Friday effect’. That’s an easy narrative to conjure up. The really boring conclusion, I think, is that it rained on Boxing Day.”

Data from footfall specialist Springboard would seem to support that verdict. It showed year-on-year shopper traffic dropped 8.6% on Boxing Day, a far greater decline than on the following two days. Although footfall fell 16% last Sunday, it climbed 11% on Monday.

Shift to experiential spend easing?

In 2017, when Next reported its first annual profits decline in eight years, Wolfson attributed the fall in part to “a sectoral shift away from spending on clothing” as consumers spent more on experiences such as eating out or holidays.

That switch towards experiential spending became a theme across retail in the years that followed. Some retailers, such as John Lewis, made it a strategic centrepiece as they sought to reinvent themselves.

Now, however, while it remains a big feature of the consumer landscape, Wolfson believes there are signs the shift towards experiential spend is moderating.

He highlighted the trend as “a negative”, versus positive factors such as employment and wage growth, which will likely still have an impact in the new year.

He observed that while there is “definitely a sectoral shift to experiential [and] we think that will continue”, the rate of change “appears not so great” as it has been.

That view may be supported by recent high-profile collapses and signs of pressure on restaurant groups. This year, for instance, chef Jamie Oliver’s restaurant business collapsed into administration. In September, it was calculated by accountants UHY Hacker Young that more than 1,400 restaurants had collapsed since June 2018 in what was labelled the “casual-dining crunch”.

Next’s update encouraged the City about the retail industry’s prospects, but nothing can be taken for granted – especially because Next is likely to outperform many other retailers.

As broker Peel Hunt noted: “Management’s forecast of 3% full-price sales growth may prove to be a microcosm of sector thinking. That’s a beatable number but it would be a brave executive team to start shooting for the stars just yet.”